One more rally before June swoon?

Avi Gilburt is author of
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Elliott Wave market analysis. Avi emphasizes a comprehensive reading of charts
and wave counts that is free of personal bias or predisposition. A lawyer and
accountant by training, he is also managing member of Gilburt Financial
Services, LLC, which provides financial markets analysis and consulting. His
Elliott Wave analysis appears frequently on sites such as SeekingAlpha, where he
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TheTechTrader.com with Harry Boxer.

The previously perceived invincibility of the equity markets seems to have been seriously tarnished, especially as a result of Friday's action. In fact, many are now even talking about seeing the 1500's already. However, we cannot say that seeing the 1620's was unexpected, as I noted last week that this green wave (4) correction can very well take us back down to the level of the 4th wave of one lesser degree in the 1620ES region. But, pay careful attention, as this is just the appetizer for what we will likely see during this coming summer's sell-off feast.

Yet, don't get comfortable on the short side for too much longer. This market is likely setting up to rip higher into the middle to end of June before we top for the summer, and a new all-time high is quite possibly sitting out there before the summer correction.

Last weekend, we said that the ideal pattern, which seemed to have been set up last Friday, called for a move that "could take [the market] up to the 1670-78ES region" and then head "back down towards the 1620/26ES region to complete green wave (4)."

Well, the market topped on Tuesday at 1673ES, then hit a low of 1626ES on Friday. However, the market did a wonderfully complicated job of hiding its true intention of attacking the 1620's this week, until Friday afternoon, when it broke down below 1640ES.

Yet, the pattern we saw on Friday was not completed to the downside. This means that I will expect lower levels this coming week. In fact, this c-wave seems to only be completing its 3rd wave by the close on Friday. That means that we should see a bounce for a 4th wave in this c-wave lasting about a day or two, which should remain below the 1640/45ES region, followed by another decline to a potential bottom for green wave (4).

We may even overshoot our 1620ES target by a bit, as it could even stretch as deep as the 1605/07ES region, wherein the Y-wave would be equal to 1.236 times the size of the W-wave. This was also the same proportions we saw for recent prior corrections, so I would not be surprised to see the same proportions in this correction as well.

But the market will likely be setting itself up for a strong snap back to its highs in the not too distant future. If we look at the McClellan Oscillator, we are in deeply oversold territory, which has marked many bottoms in the past several years. In fact, the November bottom was marked with a McClellan Oscillator reading in the region to which we dropped on Friday.

Furthermore, when looking at the daily RSI on the cash index, all corrective waves within the uptrend since November 2012 have completed when the market moved into the low 40 region. As of the close on Friday, the RSI was around the 50 level, so it still has a little lower to drop before we potentially complete this green wave (4), which aligns quite well with the internal wave count.

Last week, I also attempted to make sure everyone had their eyes on the larger perspective:

Lastly, I want to caution everyone at this time to maintain a perspective of the forest rather than the trees or leaves. Remember, when we have a 4th wave, it leads to a 5th wave top. In fact, the expectation we have had for quite some time is that this 5th wave top can provide us with a sizeable decline which should exceed 100 points, and can even take us down as low as the 200DMA, which will likely be around the 1500 region by the time we approach it. So, while we attempt to play the smaller market moves, please maintain an eye on the big picture at all times.

So, while we keep the larger decline in the forefront of our minds, I will say that a break down below 1605ES would have me considering that we have already begun yellow wave 4, which would be targeting the 1500 region and the 200DMA. But this is not my primary perspective at this time. Rather, I think this is what we have coming for the summer after we see one more rally in June.

Many have also asked me what would cause me to entertain that we have topped in the yellow D wave on the weekly chart. Well, we are quite a long way from even considering that possibility at this time. But, it would take a break down below 1470 before I would even entertain such possibilities.

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